Hard Money Apartment Building Loans

Learn the basics around financing a multi-family property.

Financing a multi-family property, or any property with five or more separate dwellings, is very similar financing a single-family home. Find a property, consider the opportunity, discuss your options with a lender—and before you know it walk away with a closed loan and newly purchased or refinanced property.

Major Qualifying Factors

One key difference between multi-family property loans and common real estate financing is the level of qualitative information required by the lender to truly grasp the borrower’s experience as an owner or manager—and most importantly—his or her ability to repay the loan. While every lender, property, and situation is different, most lenders look into the following areas as a bare minimum requirement.

Debt Coverage Ratio

The Debt-Service Coverage Ratio (DSCR) tracks the cash flow available to pay current debt obligations. It’s essentially the relationship of a property’s annual net operating income (NOI) to its annual mortgage debt (principal and interest). For example, if a property has $100,000 in annual mortgage debt and $150,000 in NOI—the DSCR is 1.5.

Liquidity

Often, lenders want to see liquidity equivalent to 6 – 9 months of debt payments. Most won’t require you to keep this in a separate account, they just want to see that level of liquidity in the borrower’s personal financial statement. If you have a partner signing the note with you, then the bank will also consider that person’s liquidity.

Personal Guarantees

Most lenders prefer to issues loans with direct recourse—money that is personally guaranteed to be paid back. If the borrower were to default, the lender comes after the personal assets of the borrower and any investor(s). Try to steer clear of recourse debt or at the very least negotiate terms to remove the recourse over time or once the asset has stabilized.